Slovenia looks to resurrect corporate life after debt

By bne IntelliNewsNovember 5, 2014

Guy Norton in Zagreb -

Having spent most of the past couple of years successfully fending off the threat of a complete meltdown in its bad debt-laden banking sector, Slovenia is now looking to make some headway on the equally tricky task of restoring its cash-strapped corporate sector back to financial health.

In the latest sign that bank creditors and corporate debtors may actually be able to finally agree on mutually beneficial solutions to the thorny issue of non-performing loans which two years ago were running in excess of 30% of total lending, the creditors of car parts supplier Cimos, one of Slovenia’s biggest companies, this week proposed a revised debt workout plan.

The terms of the proposed deal include a debt-to-equity conversion worth €208m in favour of Cimos’s leading creditors, including the Bank Assets Management Company, the so-called bad bank set up in March 2013 to address the alarming NPL problem in the Slovenian banking sector. In addition, Cimos’s creditors will provide the company with €40m in working capital.

The latest debt work scheme has been driven by state-owned Slovenian banks such as NLB and NBKM which are owed around €184m. According to a statement by BAMC's head of credit management Janne Harjunpää, the mooted plan, which is scheduled to be completed in March 2015, will set the stage for the eventual privatisation of Cimos in which major creditors such as the BAMC and the International Finance Corporation will recover their financial claims through the sale of their equity holdings in the firm, while at the same time providing much-needed capital for Cimos.

For its part Cimos’s chief executive officer Janez Gradišek described the proposal as a realistic solution that would ease the company’s liquidity woes and enable it to concentrate on its core business activities. "The financial restructuring allows us to carry out the operative restructuring of Cimos, which will establish firm foundations for the future of Cimos".

The company is hoping to complete its corporate restructuring by 2016, with plans to improve profitability on the back of a series of redundancy and cost-cutting measures as well as the sale of non-core assets.

Cimos, which employs around 7,000 people, had debts of around €400m at the end of 2013.

Relations between cash-strapped Cimos and its major creditors were strained to breaking point in late May, when bank creditors and the BAMC unexpectedly rejected a previously agreed debt-to-equity conversion plan in favour of a mandatory debt restructuring scheme. Cimos’s then CEO Jerko Bartolić resigned in protest at the change of heart by the firm’s creditors, claiming that a debt restructuring would imperil its business relationships with key long-term suppliers that could potentially find the value of their financial claims against Cimos slashed under the terms of any debt restructuring scheme.

Six months on and both sides seem to have come to a mutually acceptable solution which lays the ground for a upturn in the financial fortunes of debtor Cimos and its major creditors.

Meanwhile, in the latest development in the still financially embattled Slovenian banking sector, the European Central Bank (ECB) announced on November 4 that three lenders in the country will come under its direct supervision as part of the Single Supervisory Mechanism (SSM), a new regulatory regime which has been adopted by the European Union (EU) to shore up oversight of the eurozone’s financial sector in the wake of the economic downturn in the EU.

In Slovenia’s case the three credit institutions singled out for inclusion in the SSM are Slovenia’s state-owned NLB and NKBM alongside Unicredit banka Slovenija, the Slovenian arm of leading Italian private sector lender Unicredit . Under the aegis of the SSM the ECB will join forces with national regulators such as Slovenia’s central bank Banka Slovenije to supervise systemically important banks both in the Eurozone and the rest of the EU.

In practise this means that Banka Slovenije will provide data and support to the ECB, which will grant banking licenses, approvals for acquisitions of shares in banks, and clearance for management board members. The ECB will also manage financial audits of the banks and determine the level of fines for any regulatory transgressions. The SSM will include 120 banks initially, but the list of lenders will be updated regularly to include key lenders in the EU. In addition to directly overseeing the three banks in Slovenia, the ECB will also supervise banking groups Intesa Sanpaolo, Societe Generale, Steiermarkische Sparkasse and Sberbank Europe, which all have subsidiaries in Slovenia.

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